Rate of return on the market, Financial Accounting

The risk-free rate of return, rRF , is 10%; the needed rate of return on the market, rM, 16%; and Schuler Company's stock has a beta coefficient of 1.6.

a.       If the dividend expected during the coming year, D1, is $2.50, and if g is a constant 1.75%, then at what price should Schuler's stock sell?

b.      Now, assume the Federal Reserve Board enhances the money supply, causing a fall in the risk-free rate to 5% and rM to 12%. How would this affect the price of the stock?     

c.       In addition to the change in part b, assume investors' risk aversion declines; this fact, combined with the decline in rRF, causes rM to fall to 8%. At what price would Schuler's stock sell?

d.      Assume Schuler has a change in management. The new group institutes policies that enhance the expected constant growth rate to 6%. Also, the new management stabilizes sales and profits, and therefore causes the beta coefficient to decline from 1.6 to 0.9. Suppose that rRF and rM are equal to the values in part c. After all these changes, what is Schuler's new equilibrium price?     

 

Posted Date: 3/30/2013 1:27:49 AM | Location : United States







Related Discussions:- Rate of return on the market, Assignment Help, Ask Question on Rate of return on the market, Get Answer, Expert's Help, Rate of return on the market Discussions

Write discussion on Rate of return on the market
Your posts are moderated
Related Questions
What is asset turnover - Asset turnover is a ratio which is considered as measures the effectiveness with which a business uses its assets in relation to the level of sales or inc

Below given th einformation of the stock calculate the required return of the stock. Dividend = $4.50 every year Current sales price of stock = $ 79.85 per share Formul

The following transactions transpire during the liquidation of the Marks, Norris, Smith, and Savannah partnership: • Collected 90 percent of the total accounts receivable with the

Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4

a. Conversion cost was 140,000 and was four times the prime cost b. Direct materials used in production equaled 5,000 c. Cost of goods manufactured was 154,000 d. Ending work in pr

Q1. what are the roles and objective of FASB and IASB? Q2.what are the main reason for the joint project undertaken by the FASB and IASB? Q3.state some critics by individual and th

Financial risk is the likelihood of a company experiencing changes in the level of its distributable earnings as a result of the need to make interest payments on debt finance or p

On January 7, 2016, Captec Company purchased $4,175 of supplies on account . In Captec Company’s chart of accounts , the Supplies account is No. 15, and the Accounts Payable accoun

This lab assignment will correspond to developing a cash flow budget with an operating loan. There is on lab exercise listed below. Additionally, there are two assignment questions

Olivia has received a $15 gift certificate that is redeemable only for roasted peanuts. Bags of roasted peanuts come in two sizes, regular and jumbo. A regular bag contains 30 pean